A key but often overlooked item in pension fund reports is the actuarial balance adjustment, the line that can add money to savers’ accounts or take it away. The article explains that most people compare pension funds mainly by investment returns and management fees, but the actuarial mechanism can also move balances by thousands of shekels over time.
In a comprehensive defined-contribution pension fund, members effectively insure one another. Part of each monthly deposit goes into a separate insurance pool that pays disability and survivor benefits. Every quarter, actuaries compare actual claims with forecasts. If there were fewer claims than expected, the surplus is credited to savers. If claims were higher, the shortfall is deducted from everyone’s savings. As Meir Arnest, deputy CEO of Clal, said at a recent insurance conference: “When you tell someone they are insured for disability and survivors, you also have to say, ‘Good morning, you have become the insurer.’”
All 15 years of annual data reviewed by Calcalist show wide differences between funds. Altschuler Shaham posted an average annual surplus of 0.21 percent, while Menora Mivtachim, the industry’s largest fund by market share, posted an average deficit of 0.16 percent. On a hypothetical pension pot averaging 300,000 shekels over that period, that would mean a cumulative gain of 9,524 shekels at Altschuler Shaham versus a loss of 7,073 shekels at Menora Mivtachim. Looking only at the last four years, Infinity ranked first with a 0.57 percent average surplus, while Menora again ranked last, with a 0.22 percent average deficit.
The article says the figure should not be the sole reason to switch funds, because returns and fees can matter more over 15 years. Still, persistent deficits should be checked with the fund, broker, or adviser. Arnest argued that pension funds run by insurers perform worse because of their customer mix and underwriting. He said Harel’s fund was hit more than others by the October 7 attack, but still showed only a 0.22 percent deficit, about 2,200 shekels per million saved. He also said Menora’s weak results reflect its large base of historical blue-collar workers. By contrast, investment houses tend to have younger savers and benefit from Israel’s five-year waiting period for newcomers without continuous coverage, which initially blocks some claims.
The pension industry dispute has widened into a fight between insurers and investment houses. Arnest claimed that, in a severe event affecting 0.1 percent of insured members, insurers could see a 0.36 percent deficit and some investment houses up to 1 percent, or about 10,000 shekels per million saved. He said Swiss Re stopped reinsurance for these funds by 2024 after expecting long-term deficits. Investment houses rejected his calculations as inaccurate and said their funds offer strong service, competitive returns, and low fees, while the real issue is expanding competition in the pension market.
